Analyst: Dirk van Dissel & Alastair Murray +618 8236 8896 ... · Global Cosmetics Market was $460 Billion in 2014 and is estimated to Reach $675 Billion by 2020 . growing at a rate

QUARTERLYUPDATE

24 February 2016

OBJ LIMITED(OBJ.ASX)

DISCLAIMER Issued by Baker Young Stockbrokers Limited ABN 92 006 690 320 – Australian Financial Services Licence 246735 and should be read in conjunction with the disclosure/disclaimer in this report. PAGE 1

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12 MONTH SHARE PRICE

Recommendation – BUYBodyguard Trial success follows a solid CY2015 for OBJ as the Company showed it is making steady progress with the development, partnering and commercialisation of its various programs. We maintain coverage of OBJ Ltd (OBJ) with a BUY recommendation and risk-adjusted share price target of $0.15 per share. The Bodyguard Trial was successful and provides clinical evidence that OBJ’s Kneeguard is equal/ superior to the world’s largest selling topical NSAID treatment, meaning Kneeguard could be a new paradigm in musculoskeletal/joint pain treatment.This follows on from last year’s SK-II committment to a multi product global roll-out over 3-5 years, expected to commence 1H2016. News on the SK-II licensing front is expected in the short term as per most recent shareholder update. OBJ’s unique micro-array technology continues to be validated by the world’s largest companies with licence agreements, collaborations, research joint ventures and importantly product launches occurring over the last 18 months.OBJ poised for strong revenue growth in 2016In 2015, OBJ received its first revenues from the P&G partnership as a result of the SK-II ‘Eye Wand’ being successfully soft-launched. During this soft-launch phase, OBJ received revenue of $436,196, which we expect to grow substantially as the Eye Wand progresses to a full commercial rollout across multiple countries. We expect additional products to be launched under the SK-II Agreement in CY2016 and believe there to be a good chance that Coty Inc will execute their licence agreement 1H2016.We see just one successfully launched SK-II product being able to generate royalty revenues that will be sufficient to bring OBJ in to profitability given the Company’s low cash burn, thus we value OBJ at A$0.15/Share on a risk adjusted basis and (unrisked $0.27) after accounting for the dilution from the recent capital raise.Up to Four Major Licensing opportunities in the next 12 monthsIn addition to P&G PDA programs, OBJ has four other technology platforms based on its transdermal delivery technology that represent significant partnering/licensing opportunities with major global companies over the next 12 months (Coty inc Partnership, BodyGuard, Connect Beauty & DCE).Eight Work Plans now agreed to with P&GLast year OBJ announced their eighth P&G work plan (undisclosed) on top of their seventh which involves the shaving products division of P&G. P&G shaving products that could incorporate OBJ’s novel patented technology represent significant royalty opportunity to OBJ given P&G owns the world’s largest shaving brands which net ~US$7.6 Billion p.a.1 in sales – with major notable brands Gillette & Mach 3. These Eight Work Plans are expected to yield a pipeline of multiple P&G products incorporating OBJ’s technology thus providing multiple royalty revenue streams for OBJ. In addition, this shows P&G’s enthusiasm and interest in OBJ’s technology.Focussed on multi-billion target marketsGlobal Cosmetics Market was $460 Billion in 2014 and is estimated to Reach $675 Billion by 2020 growing at a rate of 6.4% p.a.2 Skin care has the highest market share and APAC leads the cosmetic industry with a market share of 35% in 2014.3 OBJ’s partners are either market leaders or major industry players in these sectors.Strong cash position of circa $8.2mThe recent placement has strengthened OBJ’s balance sheet considerably, added institutional investors to the share registry and will allow the company to dramatically accelerate its development programs. Being able to apply more resources to the company’s various programs should shorten the time it takes for significant value add events e.g. trials, licence agreements etc. BeautyConnect OBJ have combined their dermaportation wand technology with their optimised Smartphone App to arrive at a platform technology that allows consumers to personalise their skincare. The App will consider variables such as skin characteristics, ethnicity and weather conditions then recommend delivery of ideal formulation for the best personal skin effects. The App will also facilitate the sale of cosmetic products & services. We believe this program has outstanding partnering potential with keen interest already shown by some of the world’s largest cosmetic companies.

Baker Young Stockbrokers LimitedLevel 6, 121 King William St, Adelaide, South Australia 5000 T +61 8 8236 8888; 1800 061 765 (Toll free) F +61 8 8232 3877 E [email protected] W bakeryoung.com.au

24 February 2016

DISCLAIMER Issued by Baker Young Stockbrokers Limited ABN 92 006 690 320 – Australian Financial Services Licence 246735 and should be read in conjunction with the disclosure/disclaimer in this report.

OBJ Limited (OBJ) is an Australian life sciences company that has developed various proprietary magnetic micro-array drug delivery and product enhancement technologies for the pharmaceutical, healthcare, cosmetic, homecare and consumer goods sectors. The Company’s technology has been developed over 15 years and proven by independent studies & validated by collaboration and now partnering agreements with some of the world’s major pharmaceutical and consumer goods companies. OBJ has partnered with global companies, Procter & Gamble (P&G), GlaxoSmithKline (GSK) & COTY to develop and bring to market next generation products that deliver products transdermally using physical science rather than chemistry to provide new levels of product performance.


RECOMMENDATION

Buy PRICE

$0.064TARGET PRICE

$0.15RISK

High (Speculative)

BRIEF COMPANY DESCRIPTION

PAGE 1

RESEARCH NOTE

COMPANY DATA (24.02.2016)

ASX Code OBJ.ASXMarket Capitalisation (undiluted) ~$113.2m

Enterprise Value ~$105mShares on Issue ~1,770m12 Month High/Low $0.09/0.047Ave Monthly Turnover ~48.1mCash – Dec 2015 ~A$8.18m

(All dollars referred to in this report are in Australian dollars unless otherwise stated)

Analyst: Dirk van Dissel & Alastair Murray +618 8236 8896Authorisation: Alan Young +618 8236 8888

1. P&G Annual Report 20152. http://www.reuters.com/article/research-and-markets-idUSnBw275524a+100+BSW20150727 and http://www.marketsandmarkets.com/PressReleases/

cosmetic-products.asp 3. http://www.reuters.com/article/research-and-markets-idUSnBw275524a+100+BSW20150727

QUARTERLYUPDATE

24 February 2016



Highlights – 10 Reasons to Invest in OBJThe successful soft launch of the SK-II Eye Wand and the execution of a multi-product PDA validates OBJ’s technology. P&G elected to use their premier skin care brand, SK-II, to launch the first product incorporating OBJ’s technology, highlighting P&G’s high regard for OBJ’s technology. The Product Development Agreement (PDA) is multi-product and consists of a suite of agreements, including an initial Licensing Agreement for the first P&G product to use OBJ’s technology, SK-II. The P&G PDA and Licence Agreement sets out the work program, funding (to be borne by P&G) and royalties payable to OBJ.

Recent double blinded Bodyguard Trial successfully met End Objectives. First BodyGuard Trial was a success with overall performance improvement. Second trial shows Kneeguard equal to/superior than the world’s largest selling NSAID topical treatment. BodyGuard is aimed at treating various joint, ligament, tendon and cartilage injuries and degenerative conditions by increasing joint, tendon and ligament lubrication by mimicking natural synovial fluid aggrecans. These positive results should lead to licensing/commercialisation discussions with a global partner, with P&G having first right to review over the coming 60 days.

Coty Inc and OBJ are expected to enter negotiations for a Licence Agreement in the short term. COTY Inc., an emerging leader in beauty care is finishing a Consumer Usage Trial on top of an already completed large clinical efficacy study using OBJ’s powered technology during 2013. COTY Inc is interested in OBJ’s proprietary dermaportation technology for Cosmetic and Skin Care.

OBJ’s technologies are initially aimed at the cosmetic and OTC markets which don’t have the regulatory hurdles that pharmaceuticals do. – OBJ’s technology platform is not restricted to the skin care sector. As the technology is based on physics, not changing chemistry, it is applicable over many industries. There is ‘low hanging fruit’ in areas such as Surface Hygiene, which is another extremely large global market.OBJ’s technology is very easy to incorporate in various real life products. Magnetic Micro-Array is extremely cheap and easy to manufacture in large volumes (cost as low as ~1 cent), can be moulded to suit most shapes and their powered technologies can be produced at a low cost compared to the finished product.

OBJ is in a strong financial position after the recent Placement & SPP. The majority of trials (except the BodyGuard, Surface Hygiene trials) are/have been fully funded by partners, greatly reducing OBJ expenditure. This significantly reduces OBJ operating expenses but is also an indication of the confidence that OBJ’s partners have in the technology. We see the only upcoming major spends required by OBJ being its BodyGuard program and we estimate to be costed at <$1m and Surface Hygiene which we expect would be significantly less.

Large pipeline with further licensing transactions expected for other uses of the technology, for example, patch products, micro needles, single dose poppers & surface hygiene where OBJ’s technology can force anti-microbial and disinfectant agents deep into micro-cracks and non-porous surfaces.

Experienced Board and Management that have executed a number of Collaboration/License Agreements with large global Pharmaceutical Companies and have exceeded expectations with the commercialisation OBJ’s first product. Apart from licensing with P&G, management has experience negotiating/relationships with GSK, Unilever, Reckitt Benckiser, Galderma (Nestle) and L’Oreal to name a few.

A new breakthrough in enhanced skin penetration technology – OBJ revealed their Dynamically Configurable Emulsion (“DCE”) technology, which has the capabilities to control emulsions during application to the skin. The breakthrough provides an additional level of product diversification for OBJ, attracting strong interest by potential major partners across multiple fields.

The BeautyConnect & e-Skin professional technology platforms are a world first in beauty personalisation technology. The two applications cover the very large personalised cosmetic skin care market as well as the high margin, lower volume professional aesthetics and corrective markets. OBJ is advancing discussions with a number of parties who are global leaders in the cosmetic industry.

QUARTERLYUPDATE

24 February 2016



Ten Reasons to Invest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Company Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Summary OBJ’s Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

OBJ’s Technology Platform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Investment View . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Development Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

P&G . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

OBJ & SK-II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Bodyguard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Coty Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Dynamically Configurable Emulsion technology (“DCE”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

BeautyConnect & e-Skin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Peer Comparison Chart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Valuation Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Financial Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Key Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Disclaimer and Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Contents

QUARTERLYUPDATE

24 February 2016



Company OverviewOBJ Limited (OBJ) is an Australian life sciences company that has developed various proprietary magnetic micro-array drug delivery and product enhancement technologies for the pharmaceutical, healthcare, cosmetic, homecare and consumer goods sectors. The Company’s technology has been developed over 15 years and is proven by independent studies & validated by collaboration and now partnering agreements with some of the world’s major pharmaceutical and consumer goods companies.

OBJ has partnered/collaborated with the world’s leading companies, Procter & Gamble (P&G), GlaxoSmithKline (GSK) & Coty to develop and bring to market next generation products that deliver products transdermally (the desired molecule is gently pushed through the epidermis at which point the body naturally diffuses it) using physical science rather than chemistry to provide new levels of product performance. As OBJ’s technology improves the effectiveness and efficiency of existing formulations/ingredients of products already in the market the regulatory pathway is greatly reduced and thus the time to market should likewise be significantly shorter.

OBJ offers a portfolio of proprietary technologies and supports partners by providing IP-protected market exclusivity, expertise in magnetic array design, feasibility, efficacy, claims testing, engineering and production.

After extensive development and numerous trials, OBJ is now establishing itself as the selected technology partner for enhanced delivery and product performance to an increasing number of major international corporations in both the pharmaceutical and consumer healthcare fields.

OBJ’s technology is validated by partnerships with the world’s major pharmaceutical and consumer goods companies.

OBJ’s technology improves the effectiveness and efficiency of existing formulations/ingredients, thus reducing the regulatory pathway.

QUARTERLYUPDATE

24 February 2016



Summary OBJ’s TechnologiesOBJ utilises the movement of molecules in formulations to induce permeability changes in the skin and to redirect consumer energy to offer a new way of managing the performance, speed of action, depth of penetration and delivery of active ingredients in a wide range of pharmaceutical and consumer products.

OBJ has developed both powered and non-powered technologies in five separate product platforms that meet the cost, usability and performance requirements of a wide range of consumer products.

OBJ’s Magnetic Micro-array and ‘Field In Motion’ technologies are non-powered technologies and ideal for lower cost products such as brushes, applicators and various devices that are moved by the consumer as part of normal behaviour. These are well suited to high volume, low cost products where substantial increases in product performance can be achieved for just a few cents.

Dermaportation and Enhanced Partitioning and Penetration Systems (EPPS) are powered technologies and are well suited to smart products and applications (smart-phone connectivity) where multiple formulations delivery is desired by the consumer. They employ micro-processor controlled magnetic enhancement system that has sufficient computing power to provide a number of additional consumer focused value-added capabilities such as web programmability, smart-phone connectivity and personalised treatments. These capabilities have been incorporated into the ConnectBeauty, e-Skin® and Powered Device product platforms.

Dynamically Configurable Emulsion technology (“DCE”) is OBJ’s newest technology, which is the world’s first technology for the management and control of emulsions during application to the skin. Emulsions are the most common type of formulations used by pharmaceutical, skin care and cosmetic companies. DCE technology uses a number of physical energy forms to interact directly with intermolecular bonds that give emulsions stability and a second set of surface energies to orderly layer the components into benefited configurations during application to the skin.

OBJ’s Technology PlatformAt the moment there are five (5) central technologies to OBJ’s platform which can be grouped into three areas as shown below.

Micro Array Film Non Powered

Applicators Toothbrushes

Bodyguard P & G

Field in MotionNon Powered

SurfaceHygiene

Multi-nationals GSK

EPPS Dermaportation

Powered & Non Powered

Multi-functionDevices (E-Skin)

Measured DoseApplicators

COTYBeauty

ConnectGSK

AnalgesicsDCE &

SuperTube

OBJ’s technologies are both powered and non-powered, across five separate product platforms.

DCE is OBJ’s newest technology, which has the capabilities to control emulsions during application to the skin.

OBJ currently has 5 central technologies.

Source: OBJ Company Reports, Presentations

Source: OBJ Announcements & Company Presentations

Figure 1. Illustration of the Magnetic Micro-Array repelling molecules deeper into the skin

Figure 2: OBJ’s five central technologies

Patches

QUARTERLYUPDATE

24 February 2016



Investment ViewWe see the next 12 months and in particular the next few months as being some of the most revealing in terms of OBJ’s life as a listed company. OBJ has an extensive portfolio of programs at varying levels of commercialisation but what is perhaps most evident is OBJ’s ability to attract partners’ interest in its various programs. The calibre OBJ’s partners speaks volumes about the technology itself but unfortunately it also to some degree takes program timelines out of OBJ’s hands. As far as the technology is concerned, we believe the effectiveness of OBJ’s Micro-Array technology is beyond doubt, the question is how many different applications can it be used in and when will these products result in revenues? We see this calendar year as being pivotal in the sense of multiple projects getting to the point of commercialisation and meaningful first revenues. As per OBJ’s most recent shareholder update we believe the following events will drive shareholder value:

1. Conclusion of the licensing terms covering the introduction of the new multi-productWave-II device

The Wave-II agreements under final negotiation will span a number of years, covering the licensing rates, volumes, wholesale pricing, payment terms and intellectual property rights and obligations and we believe will propel OBJ into profitability. We base this assumption on the back of our understanding that P&G would only launch a new product (Wave II) if they expected it to make annual revenue to P&G to be greater than $100m and by applying industry standard royalty payments we arrive at a potential annual net royalty revenue to OBJ of $2.5m to $10m per product and potentially greater depending on final sales volumes and any other development payments. We anticipate that timing & launch dates will also become clearer but acknowledge the difficulty in OBJ/P&G being able to release this information due to confidentiality and competitive advantage.

2. Upgraded and expanded terms for the continuing Eye Wand device license

Given the resounding success of the soft launch of the SK-II Magnetic Eye Wand we understand P&G/SK-II are moving forward with a larger geographic launch. We assume this will involve significantly higher numbers of the Wand and that OBJ is currently negotiating better and expanded terms than they had for the initial launches. Assuming satisfactory outcomes of these negotiations we are confident that OBJ will receive much larger revenues than it did for the soft-launches.

3. Bodyguard Trial Success – OBJ prepares to enter into partnering discussions

The University of Queensland (UQ) Bodyguard trial achieved its primary objectives providing clinical evidence that the Kneeguard:• Works – i.e. it improves performance and reduces pain for people with existing knee problems

from previous knee injury & surgery• Works as well as and is superior in a number of ways to the world’s largest selling topical NSAID

treatment – the industry Gold Standard• This means that Bodyguard can be a new drug free, natural competing treatment to the NSAIDS

– this in itself is a huge global opportunityFurthermore the consumer trial showed that:• Participants preferred Kneeguard over the Gold Standard• Kneeguard outperformed the Gold Standard on a number of KPIs including purchase intent, NPS

(being a measure of participants’ intent to recommend the product), value and uniqueness• This confirms that consumers would be willing purchase the Kneeguard

Other key takeaways:

• Kneeguard and Lubricen are natural and drug free – therefore do not have the same safetyand tolerability issues that NSAIDs have (i.e. cardiac, stomach issues etc – restricted in certaincountries due to health issues).

• The maximum recommended duration of topical NSAID treatment is 14 days – as Kneeguard onlycontains natural substances (no drugs) it could be used for more than 14 days. This implies thatthe current market could ultimately be somewhat larger than current growth rates suggest.

We see the next 12 months to be very revealing for OBJ.

We believe the Wave-II licences and the new upgraded and expanded terms for the Eye Wand device, will propel OBJ into profitability.

Bodyguard can be a new drug free, natural competing treatment to the NSAIDS – this in itself is a huge global opportunity.

Kneeguard and Lubricen are natural and drug free – therefore do not havethe same safety and tolerability issues that NSAIDs have.

QUARTERLYUPDATE

24 February 2016



• The emerging topical NSAID market in the US alone is approximately US$3.3 billion, with roughlyhalf of the value coming from NSAIDs and the remainder from Cox-IIs.4 This market is expectedto grow given the aging U.S. population.

• The global NSAIDs market, which in total is worth circa US$12bn per year,5 includes both anOTC market which is concentrated in the hands of several global brand owners and the Rx(prescription) market.

• Procter and Gamble (P&G) will now be given the full trial report and data and have an exclusivityperiod (we assume 60 days) to review. There are other global companies in this field who areinterested so we anticipate competitive tension between the various parties and if P&G don’t offeracceptable terms to partner than we would expect OBJ to look elsewhere.

• Current manufacturing suggests that Bodyguard is able to be produced for a fraction of the retailprice thus making it an incredibly high margin OTC product and therefore highly desirable froma partnering perspective.

• The data will enable prospective partners to make claims about Kneeguard’s performanceenhancing the marketability of the product – a rarity in this market.

• OBJ has advanced the Bodyguard program in terms of pre-production samples in various colours and designs and enhanced the Lubricen formulation further increasing value.

We believe that Bodyguard has the real potential to be a new form of musculoskeletal treatment and create its own market. Yesterday’s results will provide the springboard to enter into partnering/distribution discussions with P&G and potentially a range of global majors for the commercialisation of either the KneeGuard or even the whole BodyGuard range. The Bodyguard program is the most advanced out of OBJ’s ‘in-house’ programs, which OBJ itself has spent the most money progressing, so it is fair to assume OBJ will retain a much larger ‘amount’ of the upside/end revenue compared to the P&G programs for instance. Kneeguard/Bodyguard has the opportunity to be a new paradigm in preventative joint treatment and globally is a significant opportunity with the majority of people experiencing increasing knee (and joint) problems the older they get. We estimate the market opportunity to be in the billions of dollars, based on selling a disposable pair of ‘guards’ for a few dollars and we understand margins could be incredibly high at greater than 80%. Thus we feel the revenues from this side of the business could ultimately rival the revenues being generated from the P&G side of the business. P&G has first right to see the results but we imagine the field of interested parties is much larger.

4. Updates on the various other P&G Work Plans

A number of these Work Plans have been under development for some time and news of these Work Plans progressing will highlight to the market that other P&G products could incorporate OBJ’s technology and therefore be commercialised in time. We feel the commercialisation timeline should be shortened due to the relationships built and understanding gathered by both parties through the SK-II Wave II and Eye Wand commercialisation. We note that P&G’s other brands in Shaving and Skincare etc are significantly larger than SK-II and therefore would offer not only much higher potential royalty revenue to OBJ but also far greater brand awareness.

5. Coty Inc Licensing or Product Development Agreement

OBJ delivered another 40 devices to Coty last quarter and is now preparing to enter final negotiations with the view to entering into some sort of license agreement. We have not previously attributed any value to the Coty/OBJ collaboration but feel the time is right now to start valuing this program within OBJ. Assuming OBJ can successfully execute an agreement with Coty, we envisage that OBJ would be able to receive payment on the powered devices themselves and the associated make-up pods or on the total value of the packaged device and make-up product. In either case we see OBJ being able to take a slice of something that we believe is >$100 per product package.

Investment View Continued

Procter and Gamble (P&G) will now be given the full trial report and data and have an exclusivity period (we assume 60 days) to review.

Significant royalty potential from P&G’s larger brands in shaving and skincare etc.

OBJ is now preparing to enter final negotiations with COTY to enter into a license agreement.

4. http://phx.corporate-ir.net/phoenix.zhtml?c=123046&p=irol-newsArticle&ID=11153335. Evaluate pharma

QUARTERLYUPDATE

24 February 2016



6. Updates on the ConnectBeauty and e-Skin professional technology

Whilst the e-Skin platform is not new at OBJ, the way it has been redeveloped and reintroduced has meant that it is now attracting significant attention from the world leaders in the cosmetic industry. We believe this technology platform will revolutionise the way that cosmetics are applied and importantly the way cosmetic companies interact with their consumers and sell their products. The prize for the global cosmetic company is dramatically increased customer loyalty via having a unique and personalised skin care application and a direct channel to sell existing and new products. This direct sales channel will remove the need for costly front of house outlets. We see social media and consumer experience interaction as providing the opportunity for ConnectBeauty to go viral and have extremely strong uptake, especially amongst younger consumers. We are however, conservative on the timeline of this exciting platform and therefore have not valued it in our model.

7. DCE and SuperTube platforms

Partner interest continues to grow in the area of high-performance packaging solutions, an innovation undertaken by the Company during 2015 to expand its technology offerings. The Company is currently working with selected partners in areas as diverse as pharmaceuticals, analgesics, multi-functional skin care products and musculoskeletal joint pain management.

During the period a program to evaluate OBJ’s Dynamically Configurable Emulsions (DCE) technology’s ability to create liquid patches was evaluated in the skin tone (skin whitening sector) with very positive results.

The DCE platform is now highly sought after by both existing and prospective partners of OBJ as a breakthrough technology.

8. Surface Hygiene

OBJ’s surface hygiene involves the use of their FIM technology in sponges, brushes and other ‘applicators’ has been shown to increase the effectiveness of surface antiseptic penetration with the target markets being household/retail, hospital, commercial and industrial sectors. Recent early stage trials conducted by the University of Western Australia showed a kill rate of two times greater for Golden Staph when using the OBJ applicator versus not using it. This sector is an enormous market and a breakthrough in this area poses a great opportunity for OBJ, enhancing the end product and adding a much desired competitive advantage.

Summary

In summary, we see events 1-6 as presenting significant re-rate opportunities and news on the DCE/SuperTubes and Surface Hygiene as being added upside. Ultimately the company only requires one of its divisions to be commercialised and be globally rolled out for it to become a profitable enterprise. In addition, most of OBJ’s revenues are in US denominated dollars so OBJ not only provides exposure to a growing US economy but also to a lower Australian dollar. We maintain our view that it is not unreasonable to expect OBJ to be generating >A$50m in annual revenues in four to five years time. We value OBJ on a probability weighted basis at $0.15 per share (un-risked at $0.27 per share) after accounting for the dilution from the recent capital raise and previous options exercise.

Investment View ContinuedThe e-Skin platform has the capabilities to transform the cosmetics industry.

The newly developed DCE platform is now highly sought after by both existing and prospective partners.

Early stage trials indicated a kill rate of two times greater for Golden Staph when using the OBJ applicator.

We value OBJ on a probability weighted basis at $0.15 per share.

QUARTERLYUPDATE

24 February 2016



Development ProgramsP&GProcter and Gamble (“P&G”) is an American multinational consumer products company that is listed on the New York Stock Exchange (NYSE: PG), with a current market capitalisation of USD$214B (~AUD$309B).6 P&G operates across 180 countries and serves approximately 4.8 Billion of the 7 Billion people on earth on a daily basis. P&G has a diverse product range, which includes household names such as Pantene, Oral B, Gillette, Head & Shoulders, Febreze, SK-II & Olay. With this strong brand portfolio comes 23 ‘billion dollar plus’ brands and an estimated 15 more between $500M and $1B in annual sales. The most notable P&G brands are Gillette, Olay and SK-II which have annual sales in excess of $8 billion, $4 billion and $1 billion respectively.7

INFO ON RELATIONSHIP WITH P&GProcter and Gamble (“P&G”) and OBJ worked together initially under a Joint Development Agreement (“JDA”) in 2011 with the common goal of developing breakthrough innovations that can deliver significant benefits for the end consumer. In April 2014, OBJ signed a Product Development Agreement with P&G and an initial licensing agreement, included three work plans, which set the course to commercialise OBJ’s magnetic micro-array technology. The PDA provided global exclusivity for non-powered technology in beauty and grooming across seven of P&G’s major product categories.Since the initiation of the PDA, OBJ have promptly and successfully launched their first product, the SK-II Magnetic Eye Wand, which is now set for a full commercial rollout. As a result of the continual success within the relationship, the PDA has now grown to eight work plans, all with significant potential. P&G pay all OBJ’s R&D costs and development costs as well as guaranteed minimum investment in OBJ for the life of the agreement, which is for the minimum life of the patents – up to 16 years in most cases. In addition P&G will lose exclusivity in certain areas if they do not meet minimum required investments.The royalty payable to OBJ per product that incorporates the magnetic micro-array is based on wholesale price, i.e. the price of the unit that P&G receives when the product leaves its doors.Total fees received are:• Development fees• Licence fees• Royalty fees on products sales

CLINICAL TRIALS P&G have undertaken a number of trials and most recently have completed two successful major human clinical trials which were conducted by an independent US-based Contract Research Organisation. The clinical trials were designed to quantify the effect of OBJ’s Magnetic Microarray technology on key biological functions of the skin. The results from the second and final clinical trial demonstrated that the OBJ magnetic microarrays delivered substantial statistical improvements in key skin barrier functions and skin health indices. When compared with an identical applicator without the micro-array technology, OBJ’s applicator demonstrated significant improvements in delivery of the formula.

SignificanceTo satisfy P&G’s technology adoption process the return of successful results from two extensive independent human clinical trials is required. OBJ’s magnetic microarray technology has completed this process, demonstrating statistical significance and proving the technologies eligibility to be incorporated across all of P&G’s brands/products. It is also important to note that these large human clinical studies (>100 participants) represent a substantial investment by P&G, further validating OBJ’s technology and highlighting its ability to improve skin health and cosmetic benefits.

6. Bloomberg & Iress as of 11/02/20167. P&G Annual Report 2015 and http://www.theaustralian.com.au/business/wall-street-journal/procter--gamble-seeks-to-boost-olay-sales-by-reducing-items/news-story/a6f-

84f4b85d359aaaf72c9285f8326b1

P&G most notable brands are Gillette, Olay and SK-II which have US$13B+ combined annual sales.

OBJ successfully launched their first product, the SK-II Eye Wand in early 2015.

OBJ and P&G’s relationship has strengthened with the PDA growing from three work plans to eight.

Trial results show substantial statistical improvements in key skin barrier functions and skin health indices.

OBJ Magnetic Microarray technology has satisfied P&G’s testing and adoption process.


Figure 3: SK-II Stempower Eye Cream with Magnetic Eye Wand

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24 February 2016



OBJ AND SK-II SUCCESSFUL LAUNCH OF SK-II MAGNETIC EYE CARE PRODUCTThe SK-II Magnetic Wand Eye Care product (“Eye Wand”) was the first product developed under the Procter & Gamble (P&G) Product Development Agreement (PDA) and the first ever to use OBJ’s magnetic microarray technology. The initial launch of the SK-II Magnetic Eye Care product was in Seoul, South Korea in October 2014. Following the initial launch in Seoul, the Eye Wand was progressively launched in Hong Kong, Taiwan, Japan and China and promoted across a variety of SK-II digital and online marketing channels. Each launch was deemed a complete success with a very positive consumer and business response to the new innovation, resulting in all launch stock being sold out and large numbers of new consumers being engaged with the SK-II brand.P&G have assessed the market data and consumer responses of the launches to structure forward rollout plans over successive years across a number of key markets to ensure maximum momentum is achieved for not only the SK-II Eye Wand but all new product innovations.

SK-II EXPANSION COMMITMENT - ‘WAVE II’As a result of the successful initial launches of the Eye Wand and the completion of consumer data analyses, P&G’s SK-II division has committed to a 3-5 year program with OBJ to develop a range of new innovations incorporating OBJ’s technologies. This includes plans to broaden the sales and marketing of the Eye Wand product, making it a permanent and key feature in upcoming seasonal marketing programs. OBJ has been working very closely with SK-II’s R&D teams in Japan and with P&G’s production groups in Singapore to develop and design the next product that will incorporate the OBJ technology platform under the SK-II brand. The first of the new products is dubbed ‘Wave-II’, and is now under final development with manufacturing and marketing plans at advanced stages. We anticipate the launch of the Wave-II to be a significant catalyst, as it should bring OBJ to a cash flow positive position for the first time. The prompt development of the SK-II programs highlights the significance of the relationship between P&G and OBJ, which continues to strengthen and grow, further committing each party to further success.

P&G - IN-SHAVE – 7th Work PlanIn-Shave TechnologyOn the 8th of September 2015 OBJ announced a new Work Plan with P&G which sets out to deliver in-shave benefits to consumers. The introduction of this Work Plan is the seventh under the P&G PDA and the first expansion for OBJ beyond skincare and will determine the opportunities for OBJ’s magnetic microarray technology to bring new benefits in men’s and women’s shaving products.OBJs management believe the blade of shaving products to be an ideal carrier of the microarray technology as it can potentially deliver a range of benefits to the consumer, without any extra steps by the consumer. We share Management’s positive outlook on this product as consumers already use the applicator (shaver) on a regular basis. According to P&G’s 2015 Annual Report their Grooming/Shave Care division delivered approximately US$7.6B in Net Sales for the year. The division is made up of female blades & razors, male blades & razors, pre and post-shave products as well as other shave care products and electronic hair removal.P&G’s Grooming/Shave Care division comprises the multi-billion dollar global brands Gillette, Fusion and Mach 3. Assuming a license will feature these brands, and in particular the Gillette products, this Work Plan presents enormous value to OBJ, as Procter & Gamble controls 70% of the global blades and razors market. Gillette leads these markets globally and as of May 2015, Forbes has estimated that Gillette ranks as the 26th most valuable brand in the world.As with the SK-II deal, P&G will fully fund all of the development work and marketing spend associated with the expected eventual product launches and OBJ will receive a royalty on the net sales achieved by P&G.

Development Programs ContinuedThe soft launch of the SK-II Eye Wand was deemed a complete success, resulting in all stock being sold out.

P&G’s SK-II division has committed to a 3-5 year program with OBJ to develop a range of new innovations.

The first of the new products is dubbed ‘Wave-II’ and is now in final stages of development.

The seventh work plan with P&G sets out to deliver ‘in-shave’ benefits to consumers.

P&G’s Grooming/Shave Care division delivered ~US$7.6B in Net Sales.

The Grooming/Shave Care division comprises multi-billion dollar brands, Gillette, Fusion & Mach 3.


Figure 3: SK-II Stempower Eye Cream with Magnetic Eye Wand

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24 February 2016



Development Programs ContinuedBODYGUARD Bodyguard is OBJ’s musculoskeletal division, which focuses on utilising the Company’s magnetic microarray technology to deliver ingredients directly into the joint cavity. Bodyguard has developed a unique platform of lifestyle maintenance products designed to reduce joint degeneration and pain by altering the underlying cause of cartilage degeneration. The technology works treating various joint, ligament, tendon and cartilage injuries and degenerative conditions by increasing joint, tendon and ligament lubrication by mimicking natural synovial fluid aggrecans.

Evaluation studies have shown that the Bodyguard technology and its proprietary Lubricen™ formulation can substantially improve joint function across a range of injuries. The ‘Kneeguard’ product combines a number of key technological innovations to become the world’s first drug-free, joint maintenance and restoration orthotic device. OBJ undertook a trial to evaluate Bodyguard, which returned positive results, with overall performance improvement following two weeks of patch use across all participants and all challenges being 14% with an improvement of >5% being the minimum required by OBJ to progress the program.

P&G Agreement

On the 16th of December, 2014 OBJ announced that its fully owned subsidiary, Bodyguard Life Sciences (Bodyguard) had executed an Exclusive Evaluation and Option Agreement with Proctor & Gamble.

The Exclusive Evaluation and Option Agreement outlines the terms and conditions under which P&G and Bodyguard will work together to evaluate the clinical efficacy, consumer appeal and commercial potential of the Bodyguard range of products and technologies.

Under the Agreement, P&G will conduct market and consumer research, price sensitivity and usability trials of Bodyguard products in consideration for an exclusive right to review the outcomes of Bodyguard’s forthcoming clinical evaluation program.

Upon completion of the evaluation, P&G will have the exclusive option to negotiate the commercial terms of an exclusive worldwide Bodyguard Product Development Agreement and Technology License. This is the first trial of its type and it naturally took some time to get materials ready for the trial.

Bodyguard (Kneeguard) Trial Success

In 2015, OBJ commenced a major double-blinded clinical trial of BodyGuard, the second human trial of the technology. The trial was conducted by the University of Queensland to compare the efficacy of the Company’s KneeGuard product in the restoration of pain-free knee functionality with one of the world’s largest selling topical non-steroidal anti-inflammatory drug products (the Product).

Highlights from the Trial:• The Kneeguard significantly improved performance in the Aggregated Function Score (AFS)

[physical function test] over a two week period.• The Kneeguard was also equivalent/superior to the Product for the sport and function components

of the KOOS (knee injury and osteoarthritis outcome score) questionnaire.• The Kneeguard achieved a statistically greater reduction in worst pain score (32%) compared to

the Product (17%) after just two weeks usage.

Participants in the clinical trial reported higher skin irritation levels with the Bodyguard product; however the Company believes has already addressed this issue with the adoption of the new Hydrogen gel technology, which is expected to eliminate this issue and further enhance efficacy of Kneeguard.

The BodyGuard platform is designed to reduce joint degeneration and pain.

The KneeGuard is set to become the world’s first ‘drug-free’ joint maintenance and restoration orthotic device.

OBJ and P&G executed an Exclusive Evaluation and Option Agreement surrounding Bodyguard.

Recently completed double-blinded clinical trial by UQ shows the Kneeguard reduces pain and improves performance and works as well as and is superior in a number of ways to the world’s largest selling topical NSAID.


Figure 4: Displays the Kneeguard patch and dispenser

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24 February 2016



Development Programs ContinuedThe follow-up post usage consumer study conducted by Ipsos Australia to examine purchase intent, overall liking, value and uniqueness of Kneeguard (Consumer Study) showed:• Participants indicated a preference for Kneeguard over using the Product.• Kneeguard outperformed the Product on a number of KPIs including purchase intent, NPS (being

a measure of participants’ intent to recommend the product), value and uniqueness. [Overallliking of the two products were similar]

• 3 in 10 users consider Kneeguard to be the best product they have ever tried;• Kneeguard is perceived to be good value.• The key strengths of Kneeguard are its ease of use, wearability, comfort, aesthetic and its ability

to reduce knee pain over time.

The clinical trial showed that Kneeguard, using OBJ’s all-natural, drug-free Lubricen formulation significantly improved physical function in individuals with a history of knee injury. It also reduced pain in this group to a greater degree than the comparator product.

Furthermore, results of a consumer trial conducted on the majority of trial participants was very strongly in favour of increased performance and purchasing intent using the Bodyguard approach.

Whilst P&G has the exclusive rights to the deal before its competitors, there are other multi-national companies interested. This will at the very least provide competitive tension and may even potentially provide the Company with multiple pathways to market for the various forms of the BodyGuard product lines.

COTYCOTY inc (NYSE: COTY) is a leading beauty company with a market capitalisation of US$9.4B and net revenues of US$4.6 billion for FY2015. Founded in Paris in 1904, COTY is a pure play beauty company with a portfolio of over 47 brands made up of well-known fragrances, colour cosmetics and skin & body care products that are sold in over 130 countries and territories. COTY’s product offerings include such global brands as adidas, Calvin Klein, Chloé, DAVIDOFF, Marc Jacobs, OPI, philosophy, Playboy, Rimmel and Sally Hansen.8

Background OBJ initiated its collaborative development program with Coty under a formal Exclusive Collaboration Agreement in February 2013. This fully funded program allowed OBJ to develop a range of proprietary fields to control the delivery of key ingredients, to be used throughout the Philosophy product portfolio. The program resulted in a Powered Delivery Device (“Powered Wand”) and formulation combination, which returned positive results from a human clinical trial in late 2013.

The Development and License Term Sheet The successful collaborative development program and subsequent clinical trial provided Coty with a primary validation of OBJ’s technology, which led to a Development and License Term Sheet between the two companies. The Term Sheet set out the terms and conditions under which Coty will have the right to commercialise a Philosophy Skincare Device incorporating OBJ’s technology.

There are a number milestones throughout the development period, which if achieved will result in a formal licensing agreement. Upon a formal licensing agreement and subsequent product sales, OBJ will receive royalties on both the Powered Wand device and the associated Coty formulation sales. The precise royalty figure will not be released by the Company but it is anticipated that it will be in the range of 2-8% in line with industry standards.

It is understood that the Powered Wand device has undergone and passed all of Coty’s internal testing, proving efficacy of the technology. Coty and OBJ are now in the in the final stages of consumer product testing, ensuring the design and ergonomics of the Powered Wand fit the consumer’s needs. It is anticipated that a commercial product launch could be as early as 2017 following successful execution of a formal licensing agreement.

The development programs with Coty are further validation of OBJ’s technology and partnering strategy. A second PDA type agreement with Coty further diversifies the company and increases the market and revenue opportunity.

Coty inc is a US$9.4B company and owns brands such as adidas, Calvin Klein, Chloé, DAVIDOFF, Marc Jacobs, Playboy and Rimmel.

Under the License Term Sheet Coty has the right to commercialise a Powered Delivery Device.

We expect royalties to be in the range of 2-8%, in line with industry standards.

8. https://www.coty.com/news/coty-inc-reports-second-quarter-fiscal-2015-results

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24 February 2016



Development Programs ContinuedDynamically Configurable Emulsion technology (“DCE”) OBJ has continued to stamp its name as an innovative leader in its field through the filing of an international patent and the subsequent launch of its newest breakthrough in enhanced skin penetration technology.

OBJ’s Dynamically Configurable Emulsion technology (“DCE”) is the world’s first technology for the management and control of emulsions. The DCE technology has been developed in-house over the past two years by OBJ’s Perth-based Skin Science Team in order to manipulate the structure and performance of emulsion-based products during application to the skin.

Emulsions are a mixture of two or more liquids in which one is present as droplets, of microscopic or ultramicroscopic size, distributed throughout the other. Emulsions are stabilised by agents that form films at the surface of the droplets (e.g. soap molecules).9

Pharmaceutical, skin care and cosmetic companies utilise emulsions as their primary type of formulation, due to their low manufacturing cost, long shelf life and even distribution of active ingredients. Once developed, the level of internal stability of emulsions will usually restrict the functionality of the product and the bioavailability of key active ingredients.

The DCE technology uses a number of physical energy forms to interact directly with intermolecular bonds that give emulsions stability and a second set of surface energies to orderly layer the components into benefited configurations during application to the skin by the consumer. DCE’s unique ability to take a standard low-cost emulsion and transform it into a selfoccluding, self-assembling, multi-layer product during consumer usage is expected to have wide industry appeal.

The development of the DCE technology was driven by market demand for enhanced skin penetration. Its development demonstrates OBJ’s ability to diversify their platform offering for a wider commercial opportunity with its international partners.

The DCE technology is an example of the OBJ’s ability to develop and advance its relationships with its international partners in recent times. Where OBJ was once seen as specialising in magnetic microarrays, OBJ is now consulted by its partners in all aspects of product performance, enhanced and innovative device design and manufacture. OBJ worked closely with its partners to take the SK-II Eye Wand from initial concept to launch in less than 9 months establishing a new innovation pathway that is now being explored by multiple parties.

We imagine that the global companies that OBJ has relationships with are all interested in the DCE platform and we believe any of them will make a suitable partner however we are not in a position to estimate a timing for the conclusion of any JV/partnership discussions.

DCE is OBJ’s newest breakthrough in enhanced skin penetration technology.

DCE is the world’s first technology for the management and control of emulsions.

Pharmaceutical, skin care and cosmetic companies utilise emulsions as their primary type of formulation.

The development of the DCE technology was driven by market demand for enhanced skin penetration.

We anticipate significant partner interest in the DCE technology.


Figure 6: Illustrates the difference in absorbed solution via DCE vs application by the finger alone


Figure 5: Example of OBJ DCE applicator

9. http://www.britannica.com/science/emulsion-chemistry

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24 February 2016



Development Programs ContinuedBEAUTY CONNECT – E-SKIN OBJ has developed a world first personalised skincare platform and e‐commerce system that allows the consumer to personalise their skincare experience using a specific Smartphone App OBJ’s dermaportation wand technology.

Product Overview:

• A user will enter their personal details in to the App as these details will form the basis for theoptimum method of application via the powered device.

• The App will consider variables such as skin characteristics, ethnicity, weather conditionsthen recommend delivery of ideal formulation for the best personal skin effects. This will becommunicated via Bluetooth to the powered device and the user will then apply the specificmakeup using the powered device.

• The App will also facilitate the sale of products and services.

We believe this technology platform will revolutionise the way that cosmetics are applied and importantly the way cosmetic companies interact with their consumers and sell their products. A global cosmetic company will be able to offer a unique and personalised skin care application which will dramatically increase customer loyalty. The App will know how much of which particular make up you the consumer is using and when they are using it, the cosmetic company will be able send notifications when makeup is running out prompting the consumer to purchase more or when new products are in season/on sale. This direct sales channel will remove the need for costly front of house outlets. We see social media and consumer experience interaction providing the opportunity for ConnectBeauty to go viral and have extremely strong uptake, especially amongst younger consumers.

Going forward we would see OBJ being able to receive royalty revenues on the sales of the App, the powered the device and most importantly some cut of the ongoing sale of makeup products. We believe there is outstanding partnering potential for BeautyConnect and there has already been strong interest shown from global cosmetic companies.

OBJ has developed the world’s first e-commerce platform/app to personalise skincare application.

The App will consider a vast range of variables and recommend delivery of ideal formulation for the best personal skin effects.

The App will also facilitate the sale of products & services with the accumulated data being very valuable to the cosmetic company.

Social Media and consumer experience interaction will broaden awareness and engage consumers.


Figure 7: Shows the App interface and the various personalisation features available

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24 February 2016



Development Programs ContinuedSurface Hygiene One of OBJ’s pipeline programs surrounds surface hygiene where OBJ through its FIM technology has been shown to increase the effectiveness of surface antiseptic penetration with the target markets being household/retail, hospital, commercial and industrial sectors.

OBJ’s Magnetic Micro-Array technology can be incorporated into household cleaning (disinfectant/antiseptic) products, such as sponges and brushes. An integration of the technology into such items will enhance the capabilities of cleaning products, enabling faster and more effective penetration of surface bacteria/film. Surface antiseptics, like skin care is very competitive and has not seen a great deal of innovation in recent times, this has led to minimal differentiation between products on the market. This sector is an enormous market and a breakthrough in this area poses a great opportunity for OBJ, enhancing the end product and adding a much desired competitive advantage.

Towards the end of CY2015 OBJ received preliminary results from hygiene evaluations at the University of Western Australia’s Department of Microbiology & Immunology that shows an applicator containing OBJ microarray technology resulted in superior bacteria kill to the same disinfectant agents applied using traditional methods.

These encouraging results represent further progress in the Company’s surface hygiene development program that commenced in 2010 to explore the impact of magnetic microarrays on the microfluidic flow conditions in hard surfaces that limit the penetration by antiseptic agents.

The study was conducted by Professor Tom Riley and demonstrated that the OBJ technology almost doubled the kill rate of Staphylococcus aureus (more commonly referred to as Golden Staph) on stainless steel, compared with traditional cleaning and disinfectant methods.

OBJ’s technology achieves this by altering the surface wetting conditions at the microscopic level that allow common disinfectants such as Triclosan (Irgasan) to better penetrate the small surface cracks and fissures that harbour harmful bacteria commonly found in hospitals, households and industry.

OBJ commenced its work in surface hygiene in 2010 and lodged separate patent protection applications in 2011. This followed successful work by Bradford University which showed that the OBJ microarray technology could increase the penetration of common materials.

OBJ has recruited a senior project manager who will focus on the development of the overall business case, market definition, development and testing programs for this exciting new area.

OBJ will utilise partnering companies with existing global brands to distribute the products once development is completed. As there is limited regulatory compliance to satisfy, it is expected that the pathway to market will be much simpler and speedier than the biological end user products.

The global market for antiseptics and disinfectants was worth $4.9 Billion in 2013 10 and it is forecast to grow at a CAGR of 11.18 percent over the period 2013-2018.11 The market for commercial and hospital disinfectants would even larger again. The major players in the surface disinfectants market include 3M Company, STERIS Corporation (U.S.), Johnson & Johnson, Cantel Medical Corp. (U.S.), The Clorox Company (U.S.), Reckitt Benckiser Group Plc. (U.K.), The Procter & Gamble Company, Sealed Air Corporation (U.S.), Whiteley Corporation (Australia) and Metrex Research, LLC. – a number of these companies OBJ already has relationships with.

OBJ’s Field in Motion technology has been shown to increase the effectiveness of surface antiseptic penetration.

Studies revealed almost double the kill rate of Golden Staph.

The global market for antiseptics and disinfectants was worth $4.9 Billion in 2013 and it is forecast to grow at a CAGR of 11.18 percent over the period 2013-2018.

10. http://www.bccresearch.com/pressroom/chm/global-market-antiseptics-disinfectants-worth-$4.9-billion-201311. Global Antiseptic and Disinfectant Products Market 2014-2018 - http://www.prnewswire.com/news-releases/global-antiseptic-and-disinfectant-products-mar-

ket-2014-2018-271086541.html

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24 February 2016



Development Programs ContinuedGlaxoSmithKline (GSK) - AnalgesicsSeparate from the GSK Oral Health division, the GSK Analgesics division have worked with OBJ on developing more effective topical analgesics for number of years. GSK is a significant global force in Over the Counter (OTC) pain relief/analgesic products and own the global brand ‘Panadol’, amongst many other analgesic brands. GSK have a new analgesic product in the pipeline, which has passed both phase I and phase II of their formulation development program and have recently entered into a joint venture Novartis which is expected to expand on this program. OBJ’s Virtual Patch precision metered dose applicator device would appear to meet many of GSK’s and Novartis’ need for more rapid and effective topical analgesia.

GSK – Oral Health We remain positive on the OBJ Oral Health programs and the manual toothbrush program that involved GSK appears to be on hold for the moment despite the results of the trial last year not being positive. However, we put these null results down to the fact that OBJ technology was only tested for 30 seconds, which is in our opinion at least half to a quarter the time that the average person takes to clean their teeth with a manual toothbrush. Longer brushing times were not tested and given other earlier oral health trials we feel more positive results could be obtained which would pave the way to this program being progressed. We also feel that given the uniform circular motion of an electric toothbrush, and the extra magnetic force generated by that circular field, OBJ will be able to show the benefits of its micro-array more effectively in electric toothbrushes.

We have removed the toothbrush program from our model and GSK analgesics is also not in our model but any significant news on these fronts will present unexpected upside.

GSK and OBJ have worked on developing more effective topical analgesics for number of years.

We remain positive on the OBJ Oral Health programs and believe this program will be progressed in the future.

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24 February 2016



ASX Listed Comparison CompaniesBelow is a table comparing selected ASX listed companies with platform technologies that have global application and $B+ addressable markets.

Company Mkt Cap ($M) Sector Sales Rev ($m)

– previous FYPotential Market

Est Size($B)Potential Royalty

RegimeRegulatory

RiskNo. products

in Market

ADO $72 Diagnostics $2.3 $20B+ unknown HIGH 1

AHZ $112Biotechnology

& Medical Devices

$9.4 $1B Cardiocel$5B+ Vaccines

High margins10-20% HIGH multiple

AJX $193 Speciality Chemicals $0.4 $9B+

FR ChemicalsMargins on sales

30-80% LOW 7

OBJ $120 FMCG $0.5 $100’s B+$1-10B

1-5%Up to 20% for BG LOW 1

UBI $66 Diagnostics $17.5CY2015 10’s B+ Est 1-10% MED 2

GSS $43 Diagnostics $0.86 $1-10B – MED 1

Source: Iress, Company Announcements and presentations and BYS Estimates

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24 February 2016



Management have been particularly guarded in terms of providing guidance on expected sales, market sizes, royalties, and timelines so we have naturally had to make a series of assumptions based on market data, P&G’s & Coty’s public data, our internal estimates and forecast trends. We do note there will be variance in the final outcomes and have modelled OBJ’s earning based on a risked & un-risked basis, taking into account the probability of products being launched, their success and timeframe for this to occur.

We have included in our models any revenues from COTY Inc for powered devices but have removed all GSK revenues despite our firm belief that something material could eventuate. At this stage there is a lack of clarity surrounding these programs to provide a forecast of earnings. The majority of our base case assumptions are listed below:

• The Weighted Average Cost of Capital (WACC) used was 12.5%.

• Product revenues on which royalties are calculated in $US before being repatriated to $AU, we have assumed AUD:USD Year 1 is $0.75 and Year 2 is $0.72 and Year 3 onwards is $0.70.

• Although Procter and Gamble do not release specific sales information on each product, we knowtotal Brand sales: SK-II generates >US$1Billion p.a., Olay generates >US$3-4 Billion p.a., Gillette &associated shaving products generate >US$7-8 Billion p.a.12, 13, 14

• Based on brand composition we can deduce the likely product mix of those brands and the potentialproducts that would likely incorporate OBJ’s technology. For the purposes of this model we have onlyassumed 3 product lines in each of these brands. With one product being a significant contributorto the brand’s total sales i.e. accounting for 10-20% the total brand’s sales. The other two productsaccount for <10% of the total brands sales.

• We firmly believe that many more products and brands have the potential to incorporate OBJ’stechnology but at this stage of the company’s life and for purposes of this model we are assumingonly 9 products will make it to market.

• We assume probability of product launch and success to range from 90-20% depending on theproduct/brand.

• We assume it is highly likely that OBJ’s technology will ultimately be integrated into the product itselfrather than being sold as an ‘add on’.

• Credit Suisse, when analysing the cosmetic market, reported a positive skew and substantial growthof luxury goods sales in South East Asia, China and Japan compared with the rest of the world. Due tothis, we have attributed an initial average 50% weighting of total annual sales towards these countries/regions over the next 10 years which accounts for the outperforming growth of these regions over thelonger term.

• Providing a successful product launch within these regions, we have assumed a global launch (100%)in the second year for each product, which we believe is in line with P&G’s mantra of going globalonce products are proven in initial launch markets.

• We also note that although the SK-II brand comprises 24 individual products (≈$42M each if you divide $1B by 24), we assume 3 or 4 brands will have a positive revenue skew (i.e. +$100m each). We have assumed the Magnetic Eye Cream in its current form will be discontinued in 4 years but will be replaced with a new SK-II product. We believe a skin lightening will be a significant product.(The global skin lightening market is predicted to reach $10 billion by 2015, driven by new markets in the West and sustained growth in Asia-Pacific, as reported by Global Industry Analysts 2014).

Valuation Methodology & Assumptions

12. P&G Annual Reports 2014 & 201513. http://brandfinance.com/images/upload/top50_cosmetics_brands_article.pdf14. http://www.theaustralian.com.au/business/wall-street-journal/procter--gamble-seeks-to-boost-olay-sales-by-reducing-items/news-story/a6f84f4b85d359aaaf72c9285f8326b1

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24 February 2016



• Similarly Olay has over 100 individual products, however these are classed within 6 collections(product lines) being Classics, Complete, Fresh Effects, ProX, Regenerist and Total Effects.

• Gillette is similar with many products spread over 5 lines, Fusion, Mach 3, M3, antiperspirant andmoisturiser, with Fusion providing the largest.

• Growth rates for gross revenues of launched P&G products depend on their particular brand andrange from 100% in the first year down to a terminal rate of 4%.

• We have also assumed a tiered royalty rated based which is generally applied to the FMCG sector.

• We assumed a royalty rate of 4.5 – 8% on gross sales for Coty products and probability of success 50%.

• For Bodyguard we assume the program is taken all the way through the clinic with manufacturing &marketing solutions determined and then partnered for distribution.

• We assume four products, KneeGuard, ElbowGuard, BackGuard & ShoulderGuard will make it tomarket given recent Trial success with probability of product launch and success ranging from 20-80% and an equivalent royalty rate (or free carried ownership) of 17.5% given:

• this program is 100% owned by OBJ• this products will form a new market that will be protected by IP• Lubricen is drug free and OTC• the business model is attractive - the products are incredibly high margin, disposable and will

likely be used regularly by a large and growing segment of the population (multi billion dollaropportunity)

• There will be significant competitive tension to license Bodyguard from large multi-nationals

Valuation Methodology & Assumptions Continued

Annual Gross Sales US($) Royalty Rate0-50,000,000 4%50,000,001-100,000,000 3.5%100,000,001-250,000,000 3.0%250000001-500,000,000 2.5%500,000,001-750,000,000 2.0%750,000,001-1,000,000,000 1.5%1,000,000,001+ 1.0%

QUARTERLYUPDATE

24 February 2016



Financial SummaryOBJ LTD

Date: 23-Feb-16Share Price ($A): $0.068Year End: 30-Jun

PROFIT & LOSS (A$mn) - year ended 30th June FY14/15A FY15/16E FY16/17E FY17/18E FY18/19E

Sales Revenue 1.42 1.45 5.4 22.2 51.15Cost Of Sales - - - - -Gross Profit 1.42 1.45 5.4 22.2 51.15Other Income 0.02 0.3 1.3 0.7 0.75Total Revenue 1.43 1.75 6.7 22.9 51.9Total Operating Expenses 3.01 3.8 4.2 5 5.3Fair Value ChangeEBITDA -1.58 -2.05 2.5 17.9 46.6Depreciation & Amortisation 0.05 0.1 0.1 0.4 1EBIT -1.63 -2.15 2.4 17.5 45.6Interest Revenue 0.10 0.05 0.2 0.4 0.8Finance Costs 0.18 0.1 0.05 0.1 0.1Net Interest ExpenseNet Profit Before Tax -1.63 -2.2 2.55 17.8 46.3Income Tax Expense 12.1Net Profit After Tax -1.63 -2.2 2.55 17.8 34.2

BALANCE SHEET (A$mn) FY14/15A FY15/16E FY16/17E FY17/18E FY18/19E

Current AssetsCash 3.5 6.4 8.9 26.8 82.2Receivables 0.417 0.03 1.08 3.33 7.67Inventories - - - - -Other 0.1 0.1 0.1 0.1 0.1Total Current Assets 4.017 6.5 10.0 30.2 90.0Non Current AssetsProperty, Plant and Equipment 0.189 0.7 0.9 1.1 1.5Intangibles 10.5 11 12 13 14Other 0.004 0.004 0.004 0.004 0.004Total Non Current Assets 10.69 11.70 12.90 14.10 15.50Total Assets 14.71 18.18 22.93 44.28 105.48Current LiabilitiesTrade and other Payables -0.31 -0.6 -0.6 -0.8 -0.8Provisions -0.03 -0.03 -0.03 -0.03 -0.03Borrowings -0.20 -0.2 -0.2 -0.2 -0.2Total Current Liabilities -0.54 -0.8 -0.86 -0.98 -1.025Non-Current LiabilitiesConvertible Notes 0.15 0.15 0 0 0Deferred Tax Liability -2.78 -2.78 -2.78 -2.78 -2.78Total Non Current Liabilities -2.63 -2.63 -2.78 -2.78 -2.78Total Liabilities -3.17 -3.43 -3.64 -3.76 -3.81NET ASSETS 11.54 14.75 19.29 40.52 101.67Contributed Capital 28.42 35.42 35.42 35.42 35.42Reserves 0.514 0.8 0.8 0.8 0.8Accumulated Losses -24 -26.2 -23.7 -5.9 28.4Total Equity 4.934 10.02 12.57 30.37 64.57

CASH FLOW (A$mn) FY14/15A FY15/16E FY16/17E FY17/18E FY18/19E

Cash at Start 4 3.5 6.4 8.9 35.6Cash Flow from Ops -2.29 -2.05 6.7 22.9 51.9Cash Flow From Investing -0.7 -1.8 -4.2 -5 -5.3Cash Flow From Financing 2.5 6.7 0 0 0Net Cash Flow -0.49 2.85 2.5 17.9 46.6Cash At End 3.51 6.4 8.9 26.75 82.2

Shares on Issue (fully diluted) 1,906,303,775 Current Mkt Cap $129.6mShare Price $0.068Rating: BuyPrice Target $0.15 per ShareValuation: High Case/Base Case $0.27 DCF WACC 12.5%Valuation Method Probability Weighted DCFUpside/(Downside): 214%Risk High (Speculative)

EARNINGSEPS - BasicEPS - DilutedEPS Growth (%)

FY14/15A FY15/16E FY16/17E FY17/18E FY18/19E

-0.001 -0.001 0.001 0.010 0.019 -0.001 -0.001 0.001 0.009 0.018

n/a n/a 215.91% 598.04% 92.13%DPS 0 0 0 0 0Franking (%) 0% 0% 0% 0% 0%Payout Ratio (%) 0% 0% 0% 0% 0%

VALUATION FY14/15A FY15/16E FY16/17E FY17/18E FY18/19E

P/E (x) -79.77 -58.92 50.83 7.28 3.79EV/EBIT (x) -79.23 -59.89 53.65 7.36 2.82EV/EBITDA (x) -81.75 -62.81 51.50 7.19 2.76Dividend Yield (%) 0% 0% 0% 0% 0%Price/Book (x) 32.27 20.00 12.92 4.30 1.44Price/NTA (x) 30.79 18.04 11.86 4.14 1.42 Price/Cash/Flow per Share (x) -264.55 45.48 51.85 7.24 2.78

GROWTH FY14/15A FY15/16E FY16/17E FY17/18E FY18/19E

Total Rev. Growth (% pcp) n/a 22% 283% 242% 127%Op. Exp. Growth (% pcp) n/a 26% 11% 19% 6%EBITDA Growth (% pcp) n/a 30% 222% 616% 160%EBIT Growth (% pcp) n/a 32% 212% 629% 161%NPBT Growth (% pcp) n/a 35% 216% 598% 160%NPAT Growth (% pcp) n/a 35% 216% 598% 92%

MARGINS & RETURNS FY14/15A FY15/16E FY16/17E FY17/18E FY18/19E

EBITDA Margin (%) -110% -117% 37% 78% 90%EBIT Margin (%) -114% -123% 36% 76% 88%NPBT Margin (%) -114% -126% 38% 78% 89%ROIC (%)**NO DEBT*** -33% -22% 20% 59% 53%ROE (%) -33% -22% 20% 59% 53%ROA (%) -11% -12% 11% 40% 32%Effective Tax Rate (%)

GEARING FY14/15A FY15/16E FY16/17E FY17/18E FY18/19E

Net Debt (A$mn) 0.15Net Debt/Equity (%) 0.1%

QUARTERLYUPDATE

24 February 2016



Key RisksAdoption RiskWhilst the need for OBJ’s various technology might be real there is no guarantee that products will be launched and sales will result in revenues which will result in royalties payable to OBJ. Furthermore there is the risk that it may take longer for the market/customers to adopt/use OBJ’s technologies.

IP RiskThe company’s sole source of revenue is through the commercialisation of its various technologies. Although OBJ is the exclusive global holder to the majority of its IP rights (P&G and OBJ have some joint patent applications) of the technology, competing technologies could infringe upon these rights thus leading to protracted disputes, which could limit OBJ’s growth potential or even render the technology obsolete.

Reduction in R&D SpendingOBJ is largely dependent on its partners for further R&D to develop certain aspects of its technology platform. If OBJ’s partners are unable to deploy sufficient resources for the development of products, it will become difficult for the company to exploit further opportunities for commercializing its technologies.

Intense CompetitionThe FMCG industry is an intensely competitive industry, and there is the prospect that other global companies will compete with similar end products/technologies to what OBJ is offering and some of these products will be marketed by well-established and financially-strong players with access to equally great resources as OBJ’s partners. This could adversely impact OBJ’s partners potential sales and even make OBJ’s technology redundant.

Regulatory RiskWhilst OBJ does not have regulatory barriers for the majority of its products the company is exposed to changes in the regulatory environment. Consequently, any unfavorable change in regulation could make it difficult for the company or its partners to effectively market products incorporating OBJ’s technologies or derive substantial margins from the same, which in turn could significantly impact financial results.

Heavy Reliance on PartnersOBJ is currently in the initial stages of commercialising its technology and would rely heavily on their Partners for meaningful revenues. Accordingly, any delay in securing the development or launching/rolling out products would materially impact the company’s financial performance.

Disclaimer and DisclosureImportant Disclaimer:This document is a private communication to clients and is not intended for public circulation or for the use of any third party, without the prior approval of Baker Young Stockbrokers Limited. In the USA and the UK this research is only for institutional investors. It is not for release, publication or distribution in whole or in part to any persons in the specified countries.

This is general investment advice only and does not constitute personal advice to any person. Because this document has been prepared without consideration of any specific client’s financial situation, particular needs and investment objectives (‘relevant personal circumstances’), the investment adviser who has provided you with this report should be made aware of your relevant personal circumstances and consulted before any investment decision is made on the basis of this document.

While this document is based on information from sources which are considered reliable, Baker Young Stockbrokers Limited has not verified independently the information contained in the document and Baker Young Stockbrokers Limited and its directors, employees and consultants do not represent, warrant or guarantee, expressly or impliedly, that the information contained in this document is complete or accurate. Nor does Baker Young Stockbrokers Limited accept any responsibility for updating any advice, views opinions, or recommendations contained in this document or for correcting any error or omission which may become apparent after the document has been issued. Except insofar as liability under any statute cannot be excluded. Baker Young Stockbrokers Limited and its directors, employees and consultants do not accept any liability (whether arising in contract, in tort or negligence or otherwise) for any error or omission in this document or for any resulting loss or damage (whether direct, indirect, consequential or otherwise) suffered by the recipient of this document or any other person.

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DISCLOSURE: Baker Young Stockbrokers acted as underwriter for the options issue in June 2013 and as lead manager in a capital raising in August 2013 and September 2015 and received fees for that service. Baker Young is retained to provide Capital Market and Investor Relations advisory services to OBJ.

ANALYST CERTIFICATION: Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: all of the views expressed accurately reflect his or her personal views about those securities or issuers and were prepared in an independent manner.

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